TY - JOUR
T1 - Perfect substitution in models of the CD market
AU - Rolnick, Arthur J.
PY - 1980/7
Y1 - 1980/7
N2 - As the CD market has become an important source of bank funds, it has also become an important market for policymakers to understand. So far, however, model builders have not recognized the significance of assuming that new and old CDs are perfect substitutes. Therefore, they have misused the assumption, discarded relevant data, and ignored evidence inconsistent with perfect substitution. This study shows that models of the CD market should not treat new and old issues as perfect substitutes and that they should not drop observations when market rates are above the Regulation Q ceiling.
AB - As the CD market has become an important source of bank funds, it has also become an important market for policymakers to understand. So far, however, model builders have not recognized the significance of assuming that new and old CDs are perfect substitutes. Therefore, they have misused the assumption, discarded relevant data, and ignored evidence inconsistent with perfect substitution. This study shows that models of the CD market should not treat new and old issues as perfect substitutes and that they should not drop observations when market rates are above the Regulation Q ceiling.
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U2 - 10.1016/0304-3932(80)90048-3
DO - 10.1016/0304-3932(80)90048-3
M3 - Article
AN - SCOPUS:49149139905
SN - 0304-3932
VL - 6
SP - 385
EP - 399
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 3
ER -